Draft Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2024

Andrew Bowie Excerpts

Monday 25th November 2024 General Committees

[Andrew Bowie (West Aberdeenshire and Kincardine) (Con)]

It is, as ever, a pleasure to serve under your chairmanship, Sir Roger. Nothing could bring me greater pleasure than to be here this evening to discuss this SI.

The previous Government brought the emissions trading scheme into UK law to provide continuity during the Brexit transition, and our framework became operational from January 2021. We did that to provide a mechanism for industry and to reduce emissions using cap and trade, to allow the market to take responsibility for our journey towards net zero.

As the Minister said, this draft order makes a number of changes to the legislation. It expands the scope to include flights from Northern Ireland to Switzerland, in line with the Great British standard. That was not previously possible due to the absence of the Northern Ireland Assembly. The draft order brings carbon dioxide venting from upstream oil and gas installations under the scheme. It also enacts the reduction in the cap on allowances and strengthens enforcement and penalties for non-compliance, including by introducing the deficit notice, and it accounts for a reserve price for stability during excessive market volatility.

When the UK-wide greenhouse gas emissions trading scheme was introduced in 2020, it was decided that its purpose was to encourage cost-effective emissions reductions that will contribute to the UK’s emissions-reduction targets and net zero goal. Today, we address the draft order in the context of satisfying that ambition. We all have a common ambition when it comes to tackling climate change, and the introduction of the cap-and-trade scheme was a component of our national efforts towards that. However, as we know, that comes at a cost, and there are inevitable trade-offs.

We have seen recently that the Labour Government’s climate policies take precedence over any financial or economic concerns—through the damage done to the North sea oil and gas industry with the extension of and increase to the energy profits levy and the ending of investment allowances, through the £58 billion cost of the Secretary of State’s plan to decarbonise the grid, and through the new ambition for an 81% reduction in omissions by 2035, with no detail on how that will be achieved. On that point, will the Minister clarify whether it is indeed the Government’s policy to see the carbon price rise to £147, as necessitated by the National Energy System Operator report? If so, what assessment has been made of the impact of that huge increase on employment, industry and households?

Specifically on this statutory instrument, and in the context of the Government’s overall energy strategy, we have serious concerns about the direction of travel, and particularly about the Labour Government’s continued attack on our North sea industry. The SI includes within the scope of the UK ETS upstream oil and gas sector activities such as carbon dioxide venting. Although that may incentivise lower emissions, it imposes significant new costs on companies that are already navigating a complex and changing regulatory environment.

There is also a concern regarding carbon leakage. As a result of the growing burdens on the North sea companies, we will see an exodus to more price-competitive, unregulated markets for production. That will not reduce omissions overall, but it will ensure that the UK sees none of the benefits. The Minister spoke about the protections against carbon leakage; I would be grateful for some more detail on that, if she would be so kind.

His Majesty’s Opposition would like to put on the record our concerns regarding the Government’s direction of travel, and we urge them to look again at the scale of anti-industry measures being continually levied on the North sea. For the sake of employment and the economy, the supply chain companies investing in new clean technologies, our energy security, and the employers and further investment that will suffer as a result, we will vote against the SI.

[Kerry McCarthy]

I thank the shadow Minister for his contribution. As I said, the UK emissions trading scheme is a key pillar of the UK’s net zero policy regime. I am slightly surprised by his decision not to support the SI —perhaps not from a political point of view, but because I am pretty sure that if he was still in the Department occupying the post I am in now, he would have supported the measures. As I said, they are just about ensuring that the scheme retains its credibility and moves forward and adapts to circumstances.

With the Northern Ireland Assembly established, it is absolutely common sense that Northern Ireland should be treated in the same way with regard to venting and flaring—

[Andrew Bowie]

indicated assent.

[Kerry McCarthy]

I am glad the shadow Minister agrees on that. He asked a specific question about the pricing. As the market conveners, we cannot comment on the price. I will leave it at that, other than to say that the market determines the price of the allowances, and opting for the top of the net zero-consistent range means that more allowances will be available while we can still deliver against our net zero trajectory.

The shadow Minister also brought up some broader issues about carbon leakage. Again, there will be plenty of opportunities to debate the issue, but we are absolutely committed to providing certainty to industry about the steps we will take to protect against carbon leakage. That is why in July 2023 the overall level of free allocations that will be provided from 2026 were set out. We have since consulted on how best to target those free allocations from the next allocation period, to ensure the smooth functioning of the market and the continued protection of at-risk sectors.

As the shadow Minister will know, the UK Government have announced that from 2027 a UK carbon border adjustment mechanism will be in place for certain at-risk sectors, and the authority has consulted on aligning free allocation charges with the start of that CBAM. I assure him that the UK ETS Authority will work the UK Government to ensure that a CBAM will work cohesively with the UK ETS, including with free allowances. No doubt that will be revisited—perhaps in this very room —over the coming months.

The draft order is a key part of our net zero policy regime. We believe that the maintenance of a strong UK ETS will play a key role in making Britain a clean energy superpower and in delivering our mission of having secure and clean electricity by 2030. By driving green investment as part of our industrial strategy, the UK ETS will also help to deliver a just transition, thereby growing the UK’s economy and securing good jobs for people throughout the country.

As I said, the changes proposed in the SI will bring in a net zero-consistent cap. I remind the shadow Minister that it was his Government who legislated for net zero, and at one point they were proud of having done that. The SI will also alter the industry cap and expand the scope of the ETS to the venting of CO2 in the upstream oil and gas sector. The change follows a comprehensive consultation on developing the UK ETS that was carried out in 2022. The proposals deliver on commitments made in the response to that consultation in July 2023, when the UK ETS Authority set out a comprehensive package of reforms to the scheme. The proposals have the long-standing support of the four Governments of the UK.

We, as part of the UK ETS Authority with the devolved Governments, are determined to manage and improve the scheme effectively. Our aim is to be predictable and responsible guardians of the scheme and its markets. We are committed to being attentive to views and to carrying forward changes as required to ensure that the scheme operates efficiently to achieve emissions reductions. The changes to the UK emissions trading scheme in the SI will support the scheme’s role as a cornerstone of the UK’s climate and net zero policy. I therefore commend the draft order to the Committee.

Question put.